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Operating lease finance in the UK retail sector

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The paper documents the importance of leasing in the UK retail sector and estimates the potential balance sheet impact of new accounting proposals to bring all leases onto lessees' balance sheets. Off-balance sheet operating leases are shown to be a major source of finance, and far more important (3.3 times higher) than on-balance sheet long-term debt; by contrast, finance leases are immaterial. Operating leased assets, the major part of which is 'land and buildings' (98%), represent a significant proportion (28%) of reported total assets. Capitalization of operating leases would have a major impact on nine key performance ratios and would alter the ranking of companies markedly. The findings suggest that operating leases need careful consideration is estimating retailers' financial risk, in comparing cross-national performance and in research studies of capital structure decisions.

Keywords: Leasing; financial ratios; lease accounting; off-balance sheet finance; operating leases

Document Type: Research Article


Affiliations: Department of Accounting, Finance and Law, University of Stirling Stirling FK9 4LA;, Tel: +44(0) 1786 467291, Email:

Publication date: 2003-01-01

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